How to price your clothing line: cost, wholesale and retail

Price clothing from the bottom up. First work out the landed cost of one garment in your warehouse. Then set a wholesale price that gives you your target margin, and a retail price that gives the shop its margin and includes VAT where the law requires it. Finally, take off channel fees, returns and discounts, and check that what is left still pays for the business.

Why price from landed cost, not from the factory price?

The number on a factory quote is not what a garment costs you. An FOB price covers the garment loaded on a ship at the origin port. Freight, insurance, import duty, customs clearance and delivery to your warehouse all come after it, and none of them is optional. A brand that sets its retail price as a multiple of the FOB price has priced the product on a number it will never pay.

Our guide to clothing manufacturing costs explains what goes into the factory price itself, and our guide to FOB, CMT and full package explains what each kind of quote includes. This guide starts where they stop: you have a price per piece, and you need to decide what to sell it for.

Step 1: work out the landed cost per piece

Landed cost is everything you pay to get one sellable garment into your stock room. As a formula:

Landed cost = FOB price + freight share + insurance share + import duty + clearance and broker share + delivery share + any costs outside the quote

The “share” lines are shipment costs divided by the number of pieces in the shipment. Duty is charged as a percentage of the customs value, and the rate depends on the product, the origin and your market. For example, Bangladeshi garments that meet the origin rules enter the EU duty-free under Everything But Arms. The US charges duty on clothing, and our market pages set out the rates for each country, starting with the pages for UK brands and US brands.

“Costs outside the quote” are the ones founders forget: laboratory tests, swing tickets, polybags you bought yourself, samples, and your own inbound inspection. Here is the arithmetic for one hoodie. Every figure in this table is for illustration only, not a quote and not a market price.

Import VAT is left out on purpose. A VAT-registered business normally reclaims it, so it affects cash flow but not the cost of the garment. If you are not VAT-registered, add it to landed cost. Our landed cost calculator does this sum for your own figures and market.

Step 2: margin or markup? Get the words right

Pricing goes wrong when people mix up margin and markup. They use the same two numbers but divide by different things.

• Markup = (price − cost) ÷ cost. It is how much you added, measured against the cost.
• Margin = (price − cost) ÷ price. It is how much of the selling price you keep, measured against the price.
• To hit a target margin: price = cost ÷ (1 − target margin).

Using the illustrative landed cost of £9.40, this is how the common multiples translate:

A “100% markup” and a “50% margin” are the same price. When a retailer asks for a 60% margin, they mean price 2.5 times their cost, not cost plus 60%.

Step 3: keystone pricing and the wholesale price

Keystone is the retail trade’s shorthand for doubling: selling at twice what you paid, a 50% margin. A simple starting point for brands that sell through shops is a double keystone: price wholesale at about twice landed cost, and let the shop price retail at about twice wholesale. In formulas:

• Wholesale price = landed cost × your multiple
• Retail price before VAT = wholesale price × the retailer’s multiple

With the illustrative hoodie: £9.40 × 2 = £18.80 wholesale, and £18.80 × 2 = £37.60 retail before VAT. Neither multiple is fixed. A retailer tells you the margin it needs, and it varies by retailer and by category. Ask before you print a price list. What matters is that you set the wholesale price first, from your own cost and margin, and then check whether the retail price it produces is one your customer will pay.

Your wholesale margin has to pay for everything that is not in landed cost: design, samples, trade shows, sales agents’ commission, warehousing and your own salary. At 1.5 times landed cost, only a third of the wholesale price is left to cover all of that, and it rarely stretches far enough.

Step 4: make the retail price VAT-inclusive where the law says so

In the UK, the Price Marking Order 2004 requires goods offered to consumers to show a price that includes VAT. Trading Standards guidance on Business Companion says so directly. The standard rate of VAT is 20%, and children’s clothes are zero-rated, according to GOV.UK. In the EU, each member state sets its own rates, and the European Commission says the standard rate must be at least 15%.

So the price on the tag is not the price you keep. The formulas are:

• Price including VAT = price before VAT × (1 + VAT rate)
• Price before VAT = price including VAT ÷ (1 + VAT rate)

For illustration: a £45.00 tag price at 20% VAT is £45.00 ÷ 1.20 = £37.50 before VAT. The £7.50 difference goes to the tax authority, not to you. A common mistake is to calculate margin on the VAT-inclusive price, which counts the VAT, a sixth of the tag price at 20%, as if it were yours.

Round the VAT-inclusive price to a sensible price point, then work backwards to check the margin still holds. In the illustration, £37.60 before VAT becomes £45.12 with VAT, and rounding it down to £45.00 costs 10p of margin per piece.

Step 5: take off channel fees

Selling direct online is not free of fees. Two published examples:

• Card payments: Stripe’s standard UK pricing is 1.5% + 20p for standard UK cards, with higher rates for premium, European and international cards.
• Marketplaces: Amazon’s US selling fees for Clothing and Accessories are a referral fee of 5% on items with a total sales price up to USD 15.00, 10% above USD 15.00 up to USD 20.00, and 17% above USD 20.00. Fulfilment, storage and advertising are charged on top.

The formula for what one sale actually brings in:

Net per sale = price before VAT − payment fee − marketplace fee − pick, pack and postage − returns allowance − discount allowance

Fees are a percentage of the selling price, so they grow when you raise prices. That is why they belong in the pricing sum and not in overheads.

Step 6: allow for returns, discounts and markdowns

Few collections sell every piece at full price. If you plan for that, it is a cost. If you ignore it, it is a surprise. A simple way to build it in is a blended selling price:

Blended price = (share sold at full price × full price) + (share sold on discount × discounted price)

For illustration: if 70% of units sell at £37.50 before VAT and 30% sell at 30% off, at £26.25, the blended price is (0.7 × £37.50) + (0.3 × £26.25) = £26.25 + £7.88 = £34.13. That £34.13, not the £37.50 on paper, is what you should compare with landed cost. Returns work the same way: each returned item costs postage both ways and handling, and some cannot be resold.

A worked example, start to finish

Here is the illustrative hoodie through a direct-to-consumer web shop, with the assumptions stated. All figures are for illustration only.

The tag says £45, but the brand keeps £18.42 per piece before a single advert is paid for. If customer acquisition costs £15 per order, the margin is thin. That is the conversation to have before you order the stock, not after.

When the numbers do not work

If the retail price your sum produces is higher than your customer will pay, you have four honest levers, and cutting the margin is the worst of them.

• Change the product. Fabric is usually the largest line in a garment’s cost, so a lighter fabric, a simpler trim or one print instead of two moves the price most.
• Change the quantity. Shipment costs spread over more pieces, and factory prices usually fall with volume. Our cost estimator shows how quantity and specification move a price.
• Change the terms. A delivered price and an FOB price are not the same number, so compare like with like.
• Change the channel. A garment that cannot survive two keystones through retail may work direct to consumer, where there is one margin instead of two.

Also check your price against the market. Cost-plus pricing tells you the lowest price you can afford. It does not tell you what customers will pay. Look at what comparable brands charge for comparable fabric and construction, and decide where you want to sit.

What to do next

Put your own figures into the landed cost calculator, then run Steps 2 to 6 on a spreadsheet for each style. When you know the landed cost your price needs, send us the tech pack and target quantity through the contact page, and we will quote against it on FOB, CIF or DDP terms, so you can see exactly which of the lines above the quote already covers.